US Cash Surplus January 2017

The US Cash Surplus for January 2017 came in at $32B as strong revenues were offset by a large increase in spending driven primarily by timing.


Revenues were up $29B, good for a 9% year over year increase which is a pretty good beat compared to my initial estimate of a +2% YOY revenue gain for the year. That’s a good thing no matter how you slice it, but…..January 2017 did have an extra business day, and the timing of those days was favorable as well. Don’t write it off yet, but my guess is that January’s gain will be February’s loss, and the YTD will settle down a bit, but we’ll have to wait and see. Complicating that forecast, of course is the February ritual of tax refunds, which should start gushing out of federal coffers in a week or two. As we have discussed in the past, I account for tax refunds as negative revenue, so any big diversion from last February’s $134B of refunds will show up in revenue for better or worse.


Outlays were up $49B and 18%, offsetting the positive revenue news, but most of that can also be explained by timing. As with revenue, the extra business day also means an extra day of expenses, but also, in January 2016 a lot of cost was pulled forward into December-2015 due to the timing of the weekend and New Year’s holiday leaving January 2016 short on outlays. That pattern didn’t repeat in 2017, so it isn’t really a surprise that we have a large increase in expenses. Assuming timing was $35B, we aren’t so far away from my estimate of +4% on the year, but we should have a better idea after a few more months of actuals and a clearer picture of what kind of legislation will get pushed through in 2017.


It’s always a good thing to start the year with a surplus, even if it isn’t likely to last long. Last January kicked off 2016 with a $52B cash surplus, so we are a little off the pace already but we certainly have an interesting year before us. My initial forecast for 2017 is a full year $800B cash deficit assuming  revenues grow at 2% and outlays grow at 4%. This estimate does not take into account any new tax cuts or spending, which could easily add $100B+ to the deficit depending on the details and the timing.


February always runs a huge deficit thanks to tax refunds and 2017 will be no different. Last February the deficit came in at $225B, and for 2017 I am guessing it will come in a little higher at $240B, with the biggest variable being the timing of tax refunds. Going forward I am going to try and stay on top of this a little better than I did in 2016, so check back every few weeks and make sure to follow me on Seeking Alpha here.

US 2016 Cash Deficit

I’m posting this way late, but the 2016 cash deficit came in at $697B breaking a 6 year streak of improving deficits and topping 2015’s deficit of $539B.


For years now revenue has been saving the day increasing faster than expenses and slowly whittling away at the size of the deficit. That streak ended in 2016 with a $55B 1.6% year over year decline. It wasn’t all bad news though, as the base of taxes withheld from paychecks actually increased 3.7%, but was offset by decreases in corporate taxes, unwithheld taxes, and a handful of one off items that boosted 2015 but did not happen again in 2016, with the 2015 spectrum auction that provided $35B cash being the largest that comes to mind. Thinking back to 2015, this shouldn’t come as a huge surprise, as while 2016 looked ok, it was basically a really good first 4 months of the year followed by 8 months that were essentially flat….and that trend carried over into the full year for 2016.


Outlays were up $104B for the full year, a 2.6% gain that was pretty much in line with my 3% estimate despite some favorable timing that pulled some 2016 outlays into the end of 2015. Nothing especially exciting here, but there usually isn’t….just a slow march up and to the right. Social Security, Medicare, and Medicaid combine for 46% of the total spend at $1.889T and look like they are increasing at about ~4% a year. Also interesting, external interest was essentially flat year over year despite the public debt outstanding increasing $762B. The mechanism for that is of course that we are seeing some of the longer dated debt with higher rates be paid off, and refinanced at the current low rates. The weighted average rate looks like it is about 2%…not too shabby but keep an eye on it in 2017 if we get a few more quarter point raises it could start adding up to big bucks going forward.


After six years of improvement we are headed back up toward $1T despite never getting closer than $539B of a balanced budget. In all fairness, going back four years, the deficit has been far lower than I had initially expected thanks to the tax hikes and moderate economic growth. Alas, it does not appear there will be a plateau, but more than likely a race to $1T and beyond.


If all else were equal, I would probably make a wild guess that in 2017 revenues would be up 2% and outlays would be up 4%, pushing the deficit up to about $800B for 2017. However, the 2016 election adds a lot of uncertainty to that. First and foremost, tax cuts seem to be on the table for both companies and individuals. Unfortunately, it will likely be summer before any of those plans make their way through congress and in the meantime, the government withholding is at the same old 2016 rates. On the outlays side, there is clearly an apetite to spend on some infrastructure projects, but even a $16B wall spread over a few years isn’t enough to make a noticeable increase in spending, especially is we get some small piecemeal savings with some cuts elsewhere….I wouldn’t expect anything actually material to be cut, but I would expect lots of political theater from both sides of the aisle.  For now, since details are short I will stick to the $800B deficit forecast but note that tax cuts could possibly increase that by another $100B or so depending on the timing and the actual cuts that get passed.